Rio Tinto
’s board is set to consider a last-ditch offer of gas supplies from the Northern Territory government that could keep the Gove alumina refinery in Arnhem Land in operation and save hundreds of jobs.

The NT Cabinet approved the release on Monday of 10 years of gas supplies for Gove from a 25-year contract held by the territory’s utility.

The government dropped an earlier proviso that it must get cast-iron guarantees of replacement supplies for the utility, Power and Water Corporation (PWC), before the gas could be released.

Signs that Chief Minister
Terry Mills
was prepared to relax his position on that issue emerged last Friday. But the offer is still conditional on PWC’s gas supplier, Eni, confirming it can still keep supplying the utility until 2026.

AFR
AFR

Also still uncertain is whether the federal government will agree to underwrite a new $900 million pipeline to transport the gas to Gove, which lies near the town of Nhulunbuy.

While Mr Mills said on Monday the federal government had pledged to back the pipeline, Federal Resources and Energy Minister
Martin Ferguson
signalled that this was not assured.

“The federal government will continue giving proper consideration to proposals that, if agreed to, would enable the construction of the required infrastructure," Mr Ferguson told the Australian Financial Review.

“This process will take some time, but will be completed as quickly as [is] practical."

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Whether the details can be sewn up in time for Rio is uncertain. A deal on gas had originally been flagged for last December.

Sandeep Biswas, chief executive of Rio’s Pacific Aluminium division, which owns Gove, said Rio would give the proposal “full consideration" but stopped short of guaranteeing the plant’s future.

“We will advise all stakeholders of the decision as soon as we are able to do so," Mr Biswas said.

Rio’s board is due to decide the fate of the loss-making refinery at a board meeting in the next couple of days ahead of the profit report on Thursday. An internal committee has already advised production be suspended in the absence of firm gas supplies.

The NT’s last-minute offer came after Mr Mills held a series of meetings in Asia and Europe last week with NT gas resource owners and with Rio chief executive
Sam Walsh
to try to save the refinery.

“Following recent meetings with international energy companies and federal colleagues, I am now confident I have reduced the risks associated with the supply of gas to the Gove refinery," Mr Mills said in Darwin after the Cabinet meeting.

The Gove refinery has been bleeding cash due to a mix of high energy costs, the strong dollar and weak alumina prices. Rio said switching the site’s energy source from fuel oil to gas was “essential" to secure its long-term viability.

Pacific Aluminium is the biggest private employer in the NT. Hundreds of jobs will be lost if the refinery closes, leaving only the bauxite mine running at the site.

If the Rio’s board accepts the gas solution,
Santos
will also deliver gas to Gove from its Mereenie fields in central Australia. Those fields will supply nearly one-third of the volume that Gove needs and may start deliveries in 2015, as required, with little investment.

But Eni will need to invest several hundred million dollars to boost production at its Blacktip offshore field to supply both PWC and Gove at the same time.

Mr Mills said the decision to release the gas for Gove came after an agreement was reached with the federal government in Canberra last week to increase the NT’s energy security by encouraging gas exploration and development.

He has also been pushing for the territory to be connected into the east Australian gas pipeline grid, which will widen the market for the territory’s gas explorers and producers, and boost energy supply security for gas consumers.